Friday, 18 September 2015

The
automobile growth story in India is double-layered: on the face of it, a mere
4-5% sales growth, 45-50% capacity utilization and profit margins under
pressure in the previous fiscal.

Pawan Bansal MD
of Altius Finserv Private Limited says "We expect India to become the
third largest sales market, and production to reach 6 million units a year by
the end of the decade. If Suzuki Motor is creating more capacity in India,
Honda is looking to enter new segments. Renault, Nissan and Volkswagen on their
part are building new capacity for exports while Ford and Fiat have both the
domestic and export markets in mind.

Here's
the break-up of the committed investments: 10 car makers have invested around
Rs 31,570 crore, two-wheeler companies, nearly Rs 8,555 crore and tyre
companies around Rs 7,350 crore in the past 10-12 months to build additional
capacity of three million vehicles, according to PwC. That works out to nearly
a third of the current Indian automotive market.

"Brand
India has been reinforced globally by the Make in India initiative. Japanese
auto major Honda is investing Rs 3,565 crore in its two wheeler and car
businesses in India as it looks to hike production capacity. With both its
businesses having a dream run in the country, some of the Honda branded
vehicles has been on a protracted waiting period, as the company struggles with
capacity. The plan is to increase manufacturing capacity by 600,000 units for
two-wheelers and by 60,000 units for cars by 2016.

India's
largest utility vehicle and tractor major, Mahindra & Mahindra, which lost
its No. 3 position to Honda is preparing for a comeback. The company plans to
raise Rs 5,000 crore from the market for plant expansion, besides investing Rs
3,500 crore in capex and new investment every year over the next three years.

For
auto makers, expansion plans are based on long-term projections and investment
companies like Altius
Finserv play a vital role in growing business. The market needs to grow at least
10% a year to absorb the additional capacities; there is always the risk of demand
not improving, leaving companies saddled with high manufacturing cost, said a
senior official of a car company who did not wish to be named.

Still,
every car maker has done its homework and sees a potential in more investments
in India. Car makers are making India an export hub for markets such as Africa,
Latin America and the Middle East. The auto sector went through a rough patch
for a good part of the previous year (2014-15), but the overall numbers and an
8% growth indicate hope.